I am a novice investor, 28 years old. I am interested in learning more, and also taking some financial risk with a small percentage of my discretionary income.

I already have a "solid", medium-risk investment (Vanguard Windsor II), and I intend to keep contributing to that (or a similar) fund over the long term.

But, I am also interested in taking some risk with discretionary income. I believe that emerging markets stand to grow as they are less constrained by their governments (compared to industries which must abide by 1st world regulations). I don't have much hope for the American or European economies short term.

Here is the fund I am interested in:


It is high risk, and has buy and redemption fees. My plan for this fund is to take 50% of my discretionary investment income and funnel it into this fund, with the other half going into less risky investments. I would probably buy in quarterly, and hold on to the investment for the long term.

I also want to buy in when the fund is low. The 1-year average yield is -18.24%, but the fund did well in other years.

I am looking for advice around the following areas:

  1. What would you look for in a similar investment?
  2. Is there a reason why an inexperienced investor should not buy this or a similar investment, aside from the risk involved?

Thank you!

1 Answer 1


In this environment, I don't think that it is advisable to buy a broad emerging market fund.

Why? "Emerging market" is too broad... Look at the top 10 holdings of the fund... You're exposed to Russia & Brazil (oil driven), Chinese and Latin American banks and Asian electronics manufacturing.

Those are sectors that don't correlate, in economies that are unstable -- a recipie for trouble unless you think that the global economy is heading way up.

I would recommend focusing on the sectors that you are interested in (ie oil, electronics, etc) via a low cost vehicle like an index ETF or invest using a actively managed emerging markets fund with a strategy that you understand.

Don't invest a dime unless you understand what you are getting into. An index fund is just sorting companies by market cap. But... What does market cap mean when you are buying a Chinese bank?

  • I agree that the sectors don't correlate, but my sense is that the economies are fairly stable by world standards. Maybe this is not true. I notice that the idea of an index fund in this case seems a little different than an index fund that follows the Dow or the SP 500. Since there is no index the fund is tracking, I guess you are right, it is just sorting companies by market cap. Or is that how index funds work in general? Sorry for the newbie question. Maybe an actively managed fund like this would be better? personal.vanguard.com/us/funds/…
    – Jeremy
    Commented Dec 29, 2011 at 21:00
  • @Jeremy Stable is a tough word. My comment on that is that Chinese banks have opaque balance sheets, and are carrying lots of bad debt from State-owned companies that they aren't getting back. When US banks like BoA and Citi were in a similar situation, it didn't end well! Commented Dec 30, 2011 at 12:24
  • @Jeremy That fund looks alot better to me. Note that in the Top 50, Baidu appears to be the only Chinese company. Commented Dec 30, 2011 at 12:37

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